It seems like a fitting combination: a socially screened fund that invests in alternative-energy stocks. That's the idea behind Calvert Global Alternative Energy fund, which began operations at the end of May. The fund (symbol CGAEX; 4.75% sales charge) employs the stock-picking talents of KBC Asset Management International, a Dublin-based firm with a history of investing in renewable energy. KBC, which has been running an alternative-energy fund for European investors since 2000, provides the stocks. Calvert, a social investment firm headquartered in Bethesda, Md., runs the picks through a series of rigorous environmental and social screens. Calvert excludes from its fund those stocks that don't pass muster.

Managers Jens Peers and Treasa Ni Chonghaile of KBC use big-picture themes to guide their stock selection. These themes include increasing grain prices for biofuels, the extension of tax credits for U.S. wind-farm operators, and a shortage of silicon used for making solar devices. The managers then search for companies with the most potential that also appear to be trading at a discount to their true value.

The fund, which currently has three-fourths of its assets invested overseas, holds about 50 companies involved in producing energy from renewable sources, including wind, solar power, biofuels and hydropower. Recently, 30% of the portfolio was in wind-power companies, such as Spanish wind turbine maker Gamesa, and another 30% was in solar-energy companies, including China's Suntech Power (STP). The fund invests in companies of all sizes, although midsize companies make up a hefty 45% of the portfolio.

On the social screening side, Calvert's 14 analysts gather information from public records, regulatory agencies, and company documents to determine if a stock is eligible for the fund. Calvert analyzes a company's performance in seven areas: governance and ethics, the environment, workplace practices, product safety and impact, international operations, and human rights.

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An example of an alternative-energy company that meets Calvert's criteria is First Solar (FSLR). The Phoenix, Ariz., company makes solar panels using glass coated with cadmium sulfide instead of silicon, which is in short supply. First Solar scores points with Calvert because its manufacturing process doesn't result in detectable air emissions, and it also operates a collection and recycling program.

Unlike many socially screened funds, the Calvert product may consider companies involved in nuclear power, but will do so only if they are also working to develop renewable energy. An example is FPL Group (FPL), one of the fund's ten-biggest holdings recently. FPL, the largest investor-owned utility in Florida, operates nuclear power plants. It is also a leading producer of wind power.

Calvert's new fund is one of just three open-end funds that focus on alternative energy. The others are New Alternatives (NALFX, 4.75% sales charge), another socially screened load fund, and the no-load Guinness Atkinson Alternative Energy (GAAEX). All three funds have substantial holdings overseas, with Guinness leading the way wit way, nearly 85% of its assets in foreign stocks. New Alternatives sports the lowest expense ratio (1.25% annually), compared with Calvert's 1.85% and Guinness' 1.98%.